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Fund Manager Insight: Ravi Gopalakrishnan, Head-Equities, Canara Robeco Mutual Fund
October 28, 2014

Canara Robeco's Infrastructure Fund is geared up to make the most of the rally in the sector which is set to unfold over the next few years. Ravi Gopalakrishnan, Head-Equities, Canara Robeco Mutual Fund tells us more about the fund and unravels why is he particularly bullish on the cement sector in the infra basket.


Author : iFAST Investment Advisory Division



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"Canara Robeco's Infrastructure Fund is geared up to make the most of the rally in the sector which is set to unfold over the next few years. Ravi Gopalakrishnan, Head-Equities, Canara Robeco Mutual Fund tells us more about the fund and unravels why is he particularly bullish on the cement sector in the infra basket."


Ravi Gopalkrishnan

Ravi Gopalakrishnan, Head-Equities, Canara Robeco Mutual Fund

Q. What is your outlook on the infrastructure sector and do you think that the recent run up in the sector is based only on sentiments?

A. We are quite bullish on Infrastructure sector as we think that the sector enjoys three fold support; first the new Government is focused on infrastructure development, second there is an increased co-ordination between centre & states which is likely to result in faster clearances for projects & finally the macro economic climate in India is slowly stabilizing. The headwinds of past 2-3 years (high inflation, CAD, fiscal deficit, BoP etc) are on the receding trajectory and this provides a ground for potential monetary easing by the RBI. Thus the prospective opportunity in this sector is huge.
Post elections the outlook for this sector changed and there was a major run up in the infrastructure sector stocks. Though it cannot be denied that sentiment contributed to the rally to some extent the rally also tried to capture the potential opportunity in the infrastructure sector. In the near term urbanization theme & sectors like roads, railways, water are likely to benefit from the opportunities available in the sector.

Q. The Indian Prime Minister has been meeting up with the various Heads of States and all of them have agreed to support India in its infrastructure development. What impact will it have on this sector and which are the areas in infrastructure which will get a boost as result of these agreements?

A. The meeting of the Indian Prime Minister with the various Heads of States from US, Japan and China signals improvement in relationship between the various countries and opens doors for investment in various sectors of the Indian economy including infrastructure. Stronger relationship with some of these countries would help in attracting the much needed foreign investment in the infrastructure sector which is very important if India’s GDP has to consistently grow at 8% over the next several years.

Q. An analysis of the portfolio for 36 months (October 2011-September 2014) shows that cement has been among the top 5 sectors during the entire period of analysis. Please explain the reason for this trend and give us the future outlook for this sector.

A. We have been bullish on the Cement Sector since Oct’10. We believe that Cement is the only sector in the entire Infrastructure value chain which easily fulfils both our investment criteria as well as profitability parameters, making it an attractive buy.
The shape of infrastructure is slowly changing towards high cement intensive projects like metro, flyovers etc. Also the Government’s agenda includes projects like DFC (Dedicated Freight Corridor), DMIC (Delhi Mumbai Industrial Corridor), Smart Cities which would require high cement utilization. Further, the government intends to incrementally look at concretization of roads in India. Thus the demand for cement is likely to be strong in the coming years & we have geared our portfolio to benefit from the Government’s vision of infrastructure development.

Q. The recent Supreme Court verdict on coal Blocks has a negative impact on certain sectors like power, metals and banks. In this scenario, could you briefly tell us how the stocks in your portfolio would be affected on account of this verdict.

A. Currently, we do not have exposure to Metals & Power Generation companies in our portfolio thus we there is no direct impact as a result of this verdict. However we may have some indirect exposure to power & metal sector through our holdings in the banking and financial sector. However, as the government intends to resolve this issue on a priority basis, the impact from the verdict on some of our holdings is likely to be limited.

Q. Since February 2013, the fund has been increasing the allocation into banking sector from 0.48% to 11.69% in September 2014. What is the rationale for including banks in a fund which is based on infrastructure theme and how will you be able to differentiate it from the other Infrastructure funds in the Industry?

A. The scheme aims to invest in Companies which directly or indirectly participate in India’s Infra story. Thus, in the BFSI space we consistently try to identify & invest in companies that have considerable exposure to the Infrastructure Sector. While we have had a reasonable exposure to the BFSI sector, we have in the last few months increased our exposure to the Banking stocks within the BFSI sector since many of the banks are now considering infrastructure project lending given the expected improvement and pick up in the overall investment cycle.

DISCLAIMER
iFAST and/or its content and research team's licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice.
Mutual Fund investments are subject to market risks. Please read all scheme related documents carefully.

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